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Poonawalla reported another patchy quarter (Q4) with elevated credit cost (3.03% of AUM) and opex (4.6% of AUM) pushing profitability materially lower (RoA of 0.76%). With sharp focus, and investment in technology and AI capabilities, the mgmt is confident of achieving strong growth with better-thanindustry credit cost, across existing offerings and the 6-7 newer products. To reflect the Q4 developments and mgmt commentary, we adjust our FY26-27 estimates, building in Rs40bn capital raise in FY26 aimed at supporting strong growth which would lead to ~25% increase in FY27E/FY26E BVPS. Led by the rise in opex/credit cost, our RoA/RoE stand reduced for FY26E/27E. We retain REDUCE on the stock, revising up Mar-26E TP (+12%) to Rs280 (FY27E P/BV: 1.7x post capital-raise). Given its AAA rating, Parent backing, a credible toplevel team, and wide bouquet of product launches, we see the company logging strong growth delivery. However, given the super-normal growth led by a mix of unsecured and secured products in hyper competitive retail segments, we still see upside risk to our credit cost estimates. Against such a backdrop, amid elevated opex and an unseasoned new book, the asset quality and profitability outcomes are all about a leap of faith in the management.

Elevated credit cost and opex continue to hurt profitability

PFL reported Q4 PAT of Rs623mn, impacted by higher credit costs, increased opex, and softer margins. The management indicated that opex will stay elevated for two more quarters due to tech investments (an additional Rs500mn per quarter). On the credit cost front, the management is seeing comfort on multiple levels, with reduced STPL book, higher 0DPD, and lower bounce rates. Also, the management mentioned launch of new products that are gaining good momentum, with disbursements for the quarter at Rs93.7bn (31% QoQ growth), leading to strong AUM growth of 15% sequentially. Overall asset quality is stable, with GS3/NS3 at 1.84%/0.85%, respectively. (Exhibit 4)

Management confident of high-quality growth and, eventually, profitability

The mgmt maintains its ~30–35% risk-adjusted growth target, driven by a strong leadership team, newly launched product suite, expanding branch network, and improved digital experience. AI-led efficiencies across functions are expected to enhance credit underwriting/collections, and supporting scalable growth. With the clean-up largely done (legacy STPL now 8% of the book) and leadership fully in place, the mgmt is confident of 5–6x book growth over 5Y, while targeting a robust, profitable business, and 3–3.5% RoA within 3Y. The mgmt indicated raising funds in FY26, for supporting such growth.

Adjust our FY26-27 estimates; maintain REDUCE; raise TP to Rs280

Factoring in the Q4 performance, we revise our FY26-27 estimates: 1) ~5% higher AUM growth; 2) ~26% earnings cut in FY26 and ~9% upgrade in FY27; 3) higher credit cost assumptions; 4) Rs 40bn fundraise in FY26. The adjustments imply a ~3-5% RoE contraction over FY26-27E. We reiterate REDUCE and revise up our Mar-26E TP by 12% to Rs280, (implying FY27E P/BV of 1.7x).

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